We have previously established that membrane-type metalloproteinases (MT-MMPs) are essential for skeletal development in the mouse, where collagenolytic activity is critically dependent on MT1-MMP and MT3-MMP. Importantly, the traits associated with loss of MT1-MMP in the mouse are a remarkable phenocopy of the human disease, Winchester syndrome (OMIM # 259600), which now is identified as a homozygous mutation of the MT1-MMP locus. Due to the pleiotropic nature of MT-MMP null-mutations and the widespread expression pattern of MT-MMP in bone, bone-associated tissues and non-bone tissues, we have generated and utilized a conditional deletion mutation strain of mice. We subsequently deleted MT-MMP activity in a cell and stage-specific fashion to account for the cell and tissue specific functions of pericellular proteolysis mediated by MT-MMPs. To establish the role of MT-MMP activity in perivascular smooth muscle/pericyte-like cells, which are considered a potential reservoir of mesenchymal progenitors, we have ablated MT-MMP activity in SM22&#945;-positive cells. Loss of MT1-MMP in this subset of cells leads to gross loss of bone in the cranium and in long bones where the trabecular and cortical bone content is dramatically reduced. Additionally, conspicuous fibrosis is associated with the diminished bone content. Together, these observations indicate that cells engaging in the formation of the skeleton to a large degree are recruited out of the perivascular cell pool and utilize MT1-MMP to exert their function. To further understand the function of pericellular proteolysis in cells committed to osteogenic fate through expression of the transcription factor, Sp7/Osx, MT1-MMP was deleted in this subset of cells. This deficit leads to overt skeletal dysmorphism and secondarily, a rampant bone resorption reminiscent of unconditional MT1-MMP deficiency. These data demonstrate that Osx positive cells and their progeny not only affect bone formation, a large component of the disease observed in universal MT1-MMP deficiency, but also regulate significant aspects of bone resorption. This observation is consistent with the ability of MT1-MMP and to cleave and shed RANKL, a critical TNF&#945; superfamily member in osteoclast differentiation. Proteolysis thus works as an attenuation factor in osteoclast recruitment together with the RANKL decoy, osteoprotegerin (OPG). Next, the role of pericellular proteolysis in Osx positive progenitors was contrasted with the function of osteocalcin (Ocn) positive, mature osteoblasts. Unlike Osx specific deletion, Ocn mediated ablation of MT1-MMP leads to grossly normal mice, which however display rampant bone loss in adulthood. Thus, while progenitor mediated deletion results in dysmorphism and resorption, osteoblast specific ablation leads to mainly bone resorption. From this observation we deduce that the mature osteogenic cell mainly serves to regulate resorption through proteolysis. The hematopoietic micro-environment is critical for proper bone formation and remodeling and we have focused on the role of MT-MMP activity in this tissue compartment. Notably, skeletal cells devoid of MT-MMP activity fail to support postnatal marrow formation in ectopic bone formation. We propose that MT-MMPs plays a pivotal role in the migration and recruitment of hematopoietic stem cells and their ability to populate a potential hematopoietic environment. Accordingly, we have demonstrated that the bone marrow of MT1-MMP deficient mice retain twice as many hematopoietic stem cells (HSCs) as observed in wildtype littermates. In an effort to identify the HSC-retaining cell and the cell responsible for recruitment of HSCs to the circulation, we demonstrated that Osx-specific loss of MT1-MMP affect the mobilization of HSC to the circulation. MT-MMP activity is required in remodeling of specific unmineralized cartilages in the skeleton. Until now, it has remained unresolved if this remodeling mechanism was a property of chondrocytes or connective tissue cells adjacent to the cartilage. Using cartilage specific ablation of MT-MMP activity, we have established that chondrocytes are essential for the remodeling of the cartilages. Importantly, neighboring cells fail to remodel these unmineralized cartilages and chondrocytes are thus essential for this remodeling process. We furthermore demonstrate that the combined loss of MT1-MMP in cartilage and universal loss of MT3-MMP dramatically exacerbates the disruption of cartilage and induce a severe growth retardation and dwarfism.